Daily analysis 15.05.2013:
EUR/USD is around 1.2900 after weaker then expected GDP readings both from France and Germany. The dollar strength is also impacting slide on GBP/USD. Growth and inflation estimates from BoE. The Polish zloty is slightly weaker to the euro.
Macro data (CET- Central European Time). Survey is supplied by Bloomberg unless otherwise noted.
- 11.00 CET GDP from the Euro Zone (survey is minus 0.1% q/q and minus 0.9% y/y)
- 11.30 CET: BoE forecast on growth and inflation
- 14.00 CET: CPI from Poland (survey 0.3% m/m and 0.7% y/y)
- 15.15 CET: Industrial production from the States (survey: minus 0.2%; April data)
EUR/USD 100 pips below Tuesday's levels. Weak data
In line with my Tuesday commentary the ZEW fell short of expectations. Economist surveyed by Bloomberg predicted that the index will be around 40, whereas the actual data was 36.4 points. There was also no relief form today's GDP reports (France, Germany). The two readings were disappointing. The largest EuroZone economy expanded only 0.1% q/q (survey +0.3) and Paris reported contraction of 0.2% (survey 0.1%). Partly it was caused by one of the coldest March in the recent years, but it is undoubtedly an indication that the expected recovery can be significantly delayed (even beyond the 3rd quarter).
Due to weak data form the major European economies, the later EuroZone GDP report will probably also be below the consensus. The afternoon data form the U.S should not change the EUR/USD sentiment. The pressure on the major pair still remains from both sides. The euro should stay weaker on lower growth and lower inflation, and the dollar will probably strengthen further due to speculations on QE3 reduction, and capital flow to the U.S denominated assests.
GBP/USD fall. U.K eco estimates
The global dollar strength is also seen on GBP/SUD. Yesterday after 4th day in the row of slide we breached 50 DMA and form the last week highs we dropped around 400 pips. Today we will receive growth and inflation expectations from the BoE. Economists surveyed by Bloomberg anticipate that the Bank will increase its GDP forecast and lower the inflation prognosis. If both variables are changed then I don't expect much more volatility. On the other hand if only inflation is reduced, but the growth stays at unchanged level then we can see some further pound weakness (on anticipation the the incoming governor will push form more QE).
The GBP/PLN pair has been pretty stable so far. Both the pound and the zloty are weakening at similar pace to the dollar. However, if the presented earlier scenario (lower inflation, growth unchanged) is valid the we can see some pound weakness even to the zloty.
The zloty is weaker again to the euro.
The Polish currency is under pressure both from home and form Europe. Also MPC members put contribute some weakness to the zloty. Yesterday professor Chojna-Duch told CNBC that “25bps rate cut is possible in June”. Similarly sounded professor Zielinska-Glebocka saying that “sees some room for Polish rate cut” and “better to make next cut earlier then later”. The market knows that further easing is also supported by Andrzej Bratkowski. If professor Hausner is also convinced to support more accommodative policy then the idea to cut rates in June will also get “the yes vote” from governor Belka. It will give the committee a good start point to analyze July NBP inflation projection.
Despite the zloty's weakness CHF/PLN is quite low. It is due to global Swiss franc weakness. The market speculates on issues which stay behind the CHF slide. Firstly the currency was overvalued due to safe have trade during the EuroZone turmoil and now the positions has been reduced. Secondly some funds are moving their assets from CHF to invest in equities. If the EUR/CHF trend remains then we can expect the lower CHF/PLN.
Expected levels of PLN according to the EUR/USD rate
Expected GBP/PLN levels according to the GBP/PLN rate
Overall technical situation on the analyzed pairs
The technical analysis was correctly point to the further EUR/USD weakness. The target is currently 1.2800. The situation on the Polish pairs hasn't changed. USD/PLN and GBP/PLN – bullish; EUR/PLN range; CHF/PLN dovish.
Technical analysis EUR/USD: The EUR/USD continues the slide with the target around 1.2800 (lows from March and April). Further we should see test of 1.2700. If breached then the bullish trend from mid July last came to the end.
Technical analysis EUR/PLN: recent EUR/PLN changes broadened the range trade (4.12-4.20). Breaking 4.1200 to the downside (200 DMA) should push the pair toward 4.10 and in extension to 4.05. A move above 4.2000 seems to be currently least probable.
Technical analysis USD/PLN: the pair has moved over 3.2000 which has generated a buy signal with the target of 3.2700. The shorts should be again opened when the pair slides under 3.15-3.14.
Technical analysis CHF/PLN: The slide on CHF/PLN has been paused . If we move above 3.3700 then the recent break down was false and the we should again remain in the range trade (3.33-3.40). The base case scenario is test of 3.2700.
Technical analysis GBP/PLN: the short term target for the pair is a move toward 5.0000 and an attempt to change the mid term trend to rising. The breaking above 5.0000 should initiate the move toward 5.1000. The alternative scenario is a move under 4.85 where bears should take the lead.
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